Dodd-Frank’s Canadian twist

If Canadian companies haven’t focused too much on the American Dodd-Frank Wall Street Reform and Consumer Protection Act so far, they probably need to look into it immediately, say lawyers on both sides of the border.

Since the massive 1,200-page bill became the law of the land in the United States last summer, it has opened the way for a series of new regulations governed by the U.S. Securities and Exchange Commission. These will primarily affect Canadian companies listed on U.S. exchanges, but other Canadian businesses can be affected by the act as well, thanks to the wide interpretation of jurisdiction by U.S. regulators and courts, a group of lawyers from American law firm Paul Weiss Rifkind Wharton & Garrison LLP said Thursday in a Toronto presentation.

Buried deep at the end of miscellaneous disclosure provisions, for example, are requirements that directly affect very important Canadian industries, like oil, gas, and mining, says Andrew J. Foley, a New York-based Paul Weiss partner specializing in Canadian issues.

“It’s almost as though members of Congress had an eye tuned to the Canadian economy as they wrote these provisions, because they have shockingly broad applications,” says Foley. “It is a massive piece of legislation and could have a huge impact on Canadian companies.”

Dodd-Frank was meant to regulate the American banking system following the financial crisis by tackling systemic risk, reining in derivate products, improving consumer protection, and increasing public company disclosures.

However, in the process, it also increased the jurisdiction of U.S. courts on securities transactions done in foreign countries as long as there is some tie to the United States, which can affect how Canadians do business.

Its whistleblower rules are drawing a lot of attention. They give anybody the right to get 10 to 15 per cent of the funds regulators recover through original information that leads to the recovery of more than US$1 million.

The act also increases the disclosure burden on Canadian companies in terms of reporting payments they make to non-U.S. governments. Although that part of the legislation was designed to keep money away from corrupt officials in the developing world, as InHouse previously reported, Canadian companies with a duty to report to the SEC might end up having to show money they give to Canadian provinces or municipalities too.

“Payments made to any foreign government will have to be disclosed. It’s extremely broad,” says Foley.

The regulations are still being rolled out, and others are being tested in court, so Canadian companies need to keep updated on issues. “Everything is still subject to change,” he adds.

Other Dodd-Frank provisions affecting Canadian companies

•    The American legislation forces Canadian companies operating mines in the United States to change their safety regulations.

•    Internationally, any company doing business with minerals that come from the Democratic Republic of Congo and surrounding countries needs to report it is not financing the ongoing war there. These minerals, like vital cellphone element coltan, are considered “conflict minerals” by the U.S. government.

•    All U.S.-listed companies are now required to have executive compensation drawback policies.

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